Despite a Commerce Commission probe into whether competitors are blocked from the plasterboard market, the giant construction supplier is to take the extraordinary step of rationing the critical building product.
Deon Swiggs is building five executive townhouses in Kaiapoi, and says the project was already stalled by four-month delays to Gib supplies.
He needs 30 tonnes. Now he doesn’t know when the $150,000 order of plasterboard will arrive onsite, with the announcement this week that Fletcher-owned Winstone Wallboards is putting a freeze on advance orders until July.
The former Christchurch councillor can’t even complete his elderly mother’s home: “I won’t be able to get my mum into her house I am building for her on my farm before winter, now,” he says. “That is very annoying and disappointing.
“I would have been looking to buy Gib early next month for that build but that throws a spanner in the works as I doubt anyone will be selling off the shelf now.”
Commerce Minister David Clark has already questioned Fletcher’s control of at least 94 percent of the plasterboard market – now builders, developers and Gib’s last remaining competitor say yesterday’s customer announcement highlights the severity of the crisis.
Big suppliers like Carters and Placemakers have warned major construction companies that the delays are getting worse, not better, and will be especially tough to manage in smaller projects. Customers had been told last month that the company wouldn’t deliver on any new orders before the end of May; now Winstone has announced it won’t take advance orders at all.
“The lockdown created a backlog of orders for Winstone Wallboards to pick and deliver and resulted in longer lead times,” it said, in a statement to customers. “These longer lead times and general concerns around supply across the industry resulted in a further large increase in forward orders being placed, which has continued to extend lead times to where they are today.
“Record manufacturing output, coupled with sourcing some product from an overseas manufacturing source has not been sufficient to keep up with the level of forward ordering and halt the increases in lead times. It is not pragmatic for lead times to continue to extend as they are and consequently an alternative approach is necessary.”
It advised that from July, the supply of Gib plasterboard, including the external Barrierline and Weatherline ranges, would be available only through an “allocation model”. Effective immediately, the company would not accept or process any new orders for July 2022 deliveries onwards.
From June, it would accept orders for the subsequent month, but those orders would be prioritised.
“These companies have a monopoly. They are literally waking up in the morning, and saying, how much are we gonna charge for that product today? It’s just dumb.”
– Deon Swiggs, SS21 Ltd
Fletcher Building denies the suggestion that this constitutes rationing. Newsroom asked the numbers of affected customers, the extent to which the problem is caused by supply shortages or panic-buying in the face of lengthy delays, what concerns have been expressed by the industry and Government – and what the company has to say to its worried customers.
Hamish Mcbeath, the company’s chief executive for building products, replied that there was strong demand across all building products. Coupled with the complexity of importing, this meant more demand for domestically-made products like Gib.
“We acknowledge the important role we play in supplying options for internal linings to the building industry, particularly given some other suppliers have chosen to withdraw from the New Zealand market,” he told Newsroom.
“Winstone Wallboards is running its two manufacturing plants 24/7 producing plasterboard products at record levels in order supply the industry. We are working closely with merchants to stabilise demand and ensure customers are getting the plasterboard products they need when they need it.
“There is willingness on all sides to play a part in smoothing out the supply issues currently in play and we have agreed with merchants to move to an on allocation model for Gib plasterboard from July. This approach allows us to optimise our plants to deliver overall more consistent volume into the market.
“As part of our long term strategy, we have invested more than $400 million in the construction of a new state-of-the-art plasterboard plant in the Bay of Plenty. The new plant will significantly increase production output and would therefore have the capacity to meet the demand levels we are seeing today. The plant is on schedule to become operational from mid-June 2023.”
In Christchurch, Combined Building Supplies Co-op director Mike Blackburn says projects are grinding to a halt. “There’s an increasing number of construction sites that are chained up,” he says. “It might be that the foundations are down, but no framing. It might be the framing is up, but no RAD board or no interior work going on. It’s simply because you just can’t get your hands on anything.”
And Placemakers operator Grant Close posted a social video last week: “It’s going to be tough over the next six months,” he said. “We can’t see any of our suppliers having any more capability to deliver to our needs.”
Instead the retail chain was turning to secondary suppliers, he said, to bring in imports from around the world. “We believe we can achieve an unconstrained product supply by about the middle of the year.
He warned builders: “Between now and then, it’s going to be tough and so you have to be ready for that.”
The timing of Winstone’s freeze couldn’t be worse: not only are costs soaring in the country’s biggest building boom since the 1970s, but suppliers are under robust scrutiny over concerns about anti-competitive behaviour. The Government has already commissioned a Commerce Commission study into building supplies. The first stage of submissions closed last week.
The Elephant that’s not in the room
Fletcher and its subsidiary Winstone Wallboards have been singled out for discussion. The manufacturer has factories in Auckland and Christchurch, and is building a big new plasterboard factory in Tauranga’s Tauriko Industrial Park.
In contrast, its only commercial-scale competitor is Elephant Plasterboard, in west Auckland. Managing director Kevin van Hest estimates New Zealand used 35 million square metres of plasterboard in the past year. His small Glendene warehouse supplies at most 3 percent of that market, but customers are now banging down the doors seeking an alternative to Gib-branded plasterboard.
It has supplied many of them but can’t do them all. Elephant, too, is struggling for space on the cargo ships bringing its plasterboard from the manufacturer in Thailand.
“It’s so out of control,” he says. “There’s so many people wanting stuff and I can understand why Winstones just hit a ‘reset’. What would normally be spread out over a year for lining houses, with projects at different stages of construction, have ended up in a lock step due to delays in earlier phases of the projects. It has all sort of been squeezed into like six months. It’s the perfect storm, along with record building consents.”
Moreover, van Hest says customers are regularly thwarted by established construction interests. “Building merchants have to hide Elephant Board under a blanket in the warehouse out back because of preferred supplied agreements.”
These deals prevent them maintaining stocks of the competing Elephant board, he says; architects specify “Gib” as if it were a generic term for plasterboard; and council inspectors are inflexible about allowing builders to swap it out.
“Some of the architects know there are choices. But if they put Elephant Board on the plan, they find more pushback from councils. Councils needs to change the way they allow people to switch. It’s so impractical – some take the Building Act so literally. They want the brand to be specified.
“Builders should have at least two options. The designs should say Gib or Elephant for a bracing or fire design specification, something like that, so they can choose the best, most available and most cost-effective product.”
Van Hest has little confidence that the Commerce Commission will do anything to enable more competition in building supplies; he says he put his case to a previous Commerce Commission inquiry into Winstone Wallboards but nothing happened. “I’ve become a bit cynical over the years, I’ve been 33½ years of struggling with this and nobody – nobody – does anything about it.”
“High concentration … can be a result of other suppliers being prevented from competing effectively due to high barriers to entry or expansion in the market. This can lead to some suppliers having a high degree of market power and the ability to set higher prices or to reduce quality.”
– Commerce Commission
In 2014 the Commission investigated allegations that Winstone Wallboards, a Fletcher subsidiary, acted anti-competitively to maintain its market dominance in the manufacture and supply of plasterboard.
“While plasterboard only accounts for between 1 and 3 percent of the cost of building a new home in New Zealand, excluding land, the construction industry is a very important part of the New Zealand economy,” said Dr Mark Berry, the chair of the commission at the time.
The commission looked into Winstone’s alleged exclusive agreements with merchants, the rebates it paid to merchants, and its alleged practice of undercutting other suppliers on jobs, but found no breach of the Commerce Act. It found only one major merchant had an agreement with Winstone to exclusively stock its Gib product.
“We acknowledge that Winstone’s market share is very high and has been for many years. This does not, however, appear to be driven by exclusive agreements with merchants, rebates offered to merchants or builders, or an anti-competitive predatory strategy,” the Commission found.
“Rather, as well as entrants not making sufficiently attractive offers to merchants to induce them to stock their product or for builders to request supply, it appears that Building Code compliance, combined with the preferences of those involved in designing, consenting and building houses, contribute to Winstone’s continued high market share.”
But since then, more competitors have been forced out of the New Zealand market, leaving only Elephant competing for the commercial market, and an even smaller player Proroc supplying DIY projects.
Global plasterboard giant Knauf’s much-vaunted entry into New Zealand, with ministers opening a distribution centre in Christchurch, ended with a whimper. Knauf sales manager John Russ said in 2018 that the dominance of Fletcher’s Gib plasterboard and Pink Batts insulation range meant Knauf faced resistance getting its products into any of the five big retail outlets.
And USG Boral pulled out of New Zealand last year, with the loss of 45 jobs, in what the Commerce Commission now describes as a “notable departure”.
Ahead of its building supplies inquiry this year, the commission has published a preliminary issues paper. It notes that one company, Fletcher Building, has a 94 percent market share in the supply of plasterboard; two companies, Holcim and Fletcher, have a combined 85 percent market share in the supply of concrete.
“High concentration is not necessarily a bad thing,” the commission says. “It can be the outcome of suppliers gaining market share by offering the best price or quality product and competing hard to maintain that position against the threat of new entry.
“However, high concentration can also indicate a weakening in the competitive process, particularly when maintained over a long period. It can be a result of other suppliers being prevented from competing effectively due to high barriers to entry or expansion in the market. This can lead to some suppliers having a high degree of market power and the ability to set higher prices or to reduce quality.”
A Cabinet paper backs up van Hest’s concerns about Fletcher’s dominance. “Pricing of building supplies is not transparent, with the widespread use of rebates and loyalty schemes shaping the market,” it says.
A 2014 MBIE study highlights the “potential negative effects” of rebates and loyalty schemes on the relationship between suppliers and merchants, builders and customers, the Cabinet paper adds.
Building and Construction Minister Poto Williams acknowledges that Covid-19 and increased global demand have affected international supply chains. “MBIE is updating its existing guidance on building product substitution to help educate the sector where there are supply chain issues.”
There is no quick fix, she tells Newsroom, but government initiatives include an inter-agency forum to plan better to meet the industry’s needs, and coordination through the Infrastructure Commission project pipeline.
“Industry is also working with government on critical supply chain resilience, advising on construction sector product dependencies from offshore, as well as options to mitigate further disruptions,” Williams says. “We will continue to maintain watch over supply chain constraints and we will continue to work with the sector to help minimise ongoing disruptions from Covid-19.”
Back in Kaiapoi, Deon Swiggs says it’s critical the Commerce Commission and the Government move fast to address the supply crisis. “If the government is serious about fixing the home affordability issues, they will sort these monopolies out and they will sort these supply issues out, because these companies have a monopoly,” he says.
“They are literally waking up in the morning, and saying, how much are we gonna charge for that product today? It’s just dumb.”